From First- to Second-Generation Social Pacts

The chapter presents a model, where the union is interested in the level of wages, employment and the level of public expenditure. Social pacts are shown not only to lead to a superior macroeconomic performance, but to be also acceptable by unions. The key to their acceptability lies in the benefit the unions draw from a higher public expenditure, in line with Tarantelli’s thought. By reflecting on the fact that public expenditure is financed through distortionary taxation, however, their model offers also the possibility to explain the second-generation social pacts in Europe highlighted by Visser.